Construction Files

“Egregious behaviour”. Behaviour seen as “an affront to the integrity and business efficacy of the tendering process”. So said the Supreme Court of Canada in its reasons for judgment in the recent Tercon Contractors Ltd. Appeal. They were referring to the actions of the BC Ministry of Transportation and Highways, during the tendering phase of a public construction project. The case involved an RFP for the construction of a highway and only six previously qualified bidders were allowed to submit a bid. Despite having clearly laid out the rules of engagement, the Ministry allowed and ultimately awarded the contract to a bidder that was not one of those qualified six. The Ministry planned to rely on its cleverly drafted exclusion clause to escape liability for this tendering transgression. It almost worked. Fortunately it did not. In a five to four decision the Supreme Court gave the win to Tercon.

The case was an important one for the construction industry. Construction lawyers are already busy “commenting” and forming their arguments for and against the future use of exclusion clauses. Some will focus on the majority decision and others will find reasons to support the dissent and I have little doubt that there will be a significant amount of billable hours put in on creating the next great, bullet-proof, exclusion clause for use by any with the deep pockets to pay. They are all too brilliant for me. I am no lawyer and I would not presume to try to interpret the finer points of law discoursed upon by the very capable and intelligent Supreme Court Justices. What I do know, however, is there are some fundamental truths to the public construction tendering process that we would all be wise to pay attention to if we want to promote the economy of this province and protect the tax-payers of British Columbia. As a prairie boy, raised on common sense, here is my take on it.

No matter how sophisticated a contractor might be, they will never be equal to the power wielded by the government. However, while Government can easily afford to hire lawyers to draft amazingly clear and concise exclusion clauses that might save them from losing a few lawsuits when they act egregiously—although a failsafe one hasn’t been discovered yet—should they? Why is it important to have a public procurement process that is fair open and transparent? I suggest that there are at least three answers to that question and they involve the following: A healthy competitive marketplace; taxpayer dollars and; squeaky clean elected officials.

Maintaining a competitive marketplace is essential to our economy. The construction industry, in particular, thrives on competition. An unfair procurement process will sour relations in areas where competition is sought as a means to partnership. Without a clean and fair tendering process contractors will not feel comfortable bidding on public work, especially the smaller contractors (about 90% of our industry in BC) who likely don’t have access to sophisticated legal advice. Fewer bidders mean higher prices. Lack of opportunity to compete leads to a contraction in the industry and the potential loss of small to medium sized companies who, quite frankly, are huge contributors to employment and training in this province. The construction industry is one of the cornerstones of our economy. Ultimately, running a robust and fair tendering process is the key to maintaining a strong sector.

Public agencies operate on taxpayers’ dollars, so we all have a vested interest in achieving the best price through healthy competition. It is also in the public’s best interest that unnecessary litigation be avoided, and that risk is dealt with in such a manner as will best protect the public. There is a need to be transparent about the tendering, evaluation and awarding processes and to stick to fair dealing so that no one can shout 'foul' post-contract award. Litigation is disruptive and expensive for all concerned, and it is worth remembering that people only challenge if they are unhappy, not only with the outcome, but with the process itself. If a procurement phase is well run, fair, clean and efficient, then most bidders will be satisfied and content with walking away without challenge. Keep in mind, at the end of the day, when things go wrong it will ultimately Mr. Deep Pockets who will pay and who has deeper pockets than the taxpayer?

Finally, politicians would do well to remember the old adage that those who ignore history are doomed to repeat it. Capital expenditure by governments presents a source of fertile ground for corruption. There are countless examples around the world of governments losing the support of the electorate due to even perceived, never mind real, back-room dealing in the tendering process. Having a truly open and transparent process is essential to ensuring that such a taint will not stain their reputation.

Construction litigation is not going to disappear any time soon but, at the very least, we should insist that our public officials do their very best to avoid expensive lawsuits and support a competitive marketplace on behalf of the taxpaying industry and the taxpaying consumers. Fair and open deals—it is not too much to ask for.

My final comment –learn the lesson provided by the Tercon case, which is, in my humble opinion: Place not your faith in lawyers’ drafting abilities, just do the right thing.

BCCA has published a guidelines document “Procedures Concerning Construction Contracts and Close Out of Projects”, modelled after similar reference documents that have existed for some time in Ontario and Alberta.

Over the last decade new people, processes and procurement protocols have led to a loss in some fundamental practices in regard to accessing information that is paramount to fair, open and transparent bidding.

CCA has introduced the new CCA 26 A Guide to the Construction Management (CM) Project Delivery Method (2016). Along with the Guide these are some other considerations which are very important in insuring a successful delivery of a project using Construction Management.

In 2015, the Canadian Construction Association (CCA) embarked on a series of “Quality of Documents” workshops across Canada. CCA issues its report on the findings from the workshops. Learn more about these key findings and takeaways.

The soon-to-be-published ‘Building a BC Construction Innovation Strategy’ (a joint initiative of BCCA and the Home Owner Protection Office) points out one of the biggest hindrances to innovation and productivity in the construction industry: the inequitable allocation of risk down the supply chain to those least able to support it.

To support public owners in their efforts to hold themselves accountable to taxpayers through fair open, and transparent procurement practises, the BCCA offers Thresholds for Procurement of Publicly Funded Construction policy.

By their very nature, liquidated damages clauses in contracts cause an adversarial relationship to exist from the outset on a construction project. Such clauses are used in contracts to assign financial responsibility to the contractor for damages that are likely to be incurred by the owner if the specified schedule is not met.

Providing Planholder Lists to members is a core service provided for decades by the Construction Associations all across Canada. For example the Construction Association of Victoria, which started in 1912 as a Builders Exchange, is the oldest Construction Association west of Winnipeg and it has likely collected Planholders Lists almost from the very beginning of its 95 year existence.

The rationale of the tender process is to replace negotiation with competition and, subject to the terms of the tender documents, negotiation is generally not permitted in the tender process. One of the primary reasons why negotiation is not permitted is to prevent bid shopping. Generally, where the tender documents expressly permit negotiation, negotiation is only permissible so long as it is consistent with what is expressly provided in the tender documents.

In providing a price, contractors expect that the contract documents are complete and reflect the project requirements, and that any changes, errors or omissions from the documents will lead to a change order with commensurate adjustment to both the contract price and duration. As the bidding is done in a competitive environment, contractors and their subcontractors are reluctant to add allowances to their tendered price, fearing that they will not be successful as low bidder.

Since the early days of Building Exchanges, facilitating and managing public construction bids has been a focal point for construction associations. The BC Construction Association (BCCA) and its regional construction association partners BCCA North, Southern Interior Construction Association, BCCA Vancouver Island and Vancouver Regional Construction Association, are no exception to this rule.

Ensuring that a bidding process is fair, open and transparent is perhaps the second most important element in the bidding process to contractors preceded only by whether they were the successful bidder on the project.

Construction work is project based, with unique project teams assembled through a tendering process. These project teams typically involve an owner who is the buyer of construction services from a general contractor, who in turn employs sub-contractors and often sub-sub-contractors. Add numerous suppliers to the mix, at all levels of the contracting pyramid.

The impact of changes in the scope of work – both time and money – is probably the single most disputed issue in construction. Therefore, in order to keep the project moving toward completion, the contractual provisions governing changes must be fair as well as effective in encouraging the timely resolution of cost and time issues.
However, feedback from contractors is that change order markups are a major issue. Two decades ago, the discussion about markups on changes to the work was not as intense as it is today. What has changed?

“Egregious behaviour”. Behaviour seen as “an affront to the integrity and business efficacy of the tendering process”. So said the Supreme Court of Canada in its reasons for judgment in the recent Tercon Contractors Ltd. Appeal.

The British Columbia Documents Committee (BCDC) has recently published updates and added new Standard Documents and Guidelines for a Stipulated Price Bid for use on Publicly Funded Building Projects in the Province of British Columbia.

When the British Columbia Construction Association (BCCA) introduced online bidding three years ago – in the form of the BidCentral platform – there was one element of the process anticipated to go through the most significant evolution: the protocol for the submission of bid bonds online. Or, as it has now commonly become known: e-bonding.

With little to no exception, all levels of government within Canada have an aspiration to further economic development through their purchasing conduct – often highlighting specific populations and objectives.
In addition to established policies, public sector entities continue to learn and expand policy and processes to do with minority groups such as Aboriginal suppliers. Recent examples in our province can be drawn from tenders for civil construction projects where preference is given to contractors who hire Aboriginal workers or who engage in Joint Venture with Aboriginal companies.

A liquidated damages clause will be enforceable where it represents a genuine pre-estimate of the damages an owner will likely suffer as a result of a contractor’s delay. However, where a liquidated damages clause is excessive and objectively unreasonable, it will likely be considered a penalty clause and will be unenforceable.

Integral to BCCA’s policy for the Use of Owner Forces are several other policies that the Association endorses. Fundamentally, it is rooted in our policy on Freedom of Enterprise which is that we support an economic and political system based on individual freedom and the competitive free enterprise sy

In our January 2007 Construction File we published how we were going to be issuing Contractor Alerts to bring attention to the onerous clauses that contractors see as an impediment to bidding on projects. In the five years since we introduced this protocol we have issued several Contractor Alerts. On the projects where it has been used it has been effective in educating contractors of the risks of onerous bidding conditions.

Government agencies in BC are facing increasingly tight budgets and the need to efficiently allocate scarce resources is critical. In order that the taxpayers can receive the best possible services, agencies must focus on their core activities and seek to outsource others to private industry.

“Egregious behaviour”. Behaviour seen as “an affront to the integrity and business efficacy of the tendering process”. So said the Supreme Court of Canada in its reasons for judgment in the recent Tercon Contractors Ltd. Appeal. They were referring to the actions of the BC Ministry of Transportation and Highways, during the tendering phase of a public construction project.

The prospect of a major construction job generally initiates a cascade of invitations to bid from the owner, to general contractors, to subcontractors, to suppliers and other participants. The invitations generate a corresponding flow of bids upwards along the same food chain. Each compliant bid submitted along that food chain creates a bid contract between the party seeking bids and the bidder which, generates corresponding obligations as expressly and impliedly set out in the bid documents.

In the June 2002 BCCA Bulletin we published an article called ‘A Fine Day to be a Lawyer’. At that time we expressed concerns about the implementation of the BC Government’s Capital Asset Management Framework and in particular the removal of the BC Government’s Standard Stipulated Sum contract, which was removed under the guise of reducing red tape.

The BCCA Electronic Bidding System is one component of the on-line bidding tools that were developed by BCCA along with Infinite Source Systems. What has been built is a seamless system that has the capability to eventually include everyone in the bidding chain from material suppliers bidding to subsubcontractors through to the general contractors bidding to owners.

By their very nature, liquidated damages clauses in contracts cause an adversarial relationship to exist from the outset on a construction project. Such clauses are used in contracts to assign financial responsibility to the contractor for damages that are likely to be incurred by the owner if the specified schedule is not met.

Why is it that BCCA is adamantly opposed to pre-qualification of contractors as general practice? In a nut shell, it is because of the subjectivity of the process. As a general practice we don’t see that it can be completely fair, open and transparent. Somewhere in the methodology, a decision is made that affects a contractor’s right to do business with the government based on some subjective consideration.

As a result of the publication of the new CCDC 2, 2008 there is a concurrent update being undertaken to the Standard Documents and Guidelines for a Stipulated Price Bid for use on Publicly Funded Building Projects in the Province of British Columbia.

When documents contain clauses that discourage contractors from bidding, raise the costs associated with bidding, add onerous risk, or limit the competition to a select few bidders, it may come at a cost to the owner. Such an outcome creates the potential for unfairness or misuse of public funds.

When documents contain clauses that discourage contractors from bidding, raise the costs associated with bidding, add onerous risk, or limit the competition to a select few bidders, it may come at a cost to the owner. Such an outcome creates the potential for unfairness or misuse of public funds.

Effective February 1, 2008 the new CCDC2, 2008 is available for use. The existing 1994 document will no longer be published as of July 1, 2008. Existing seals for the 1994 document may be exchanged for the new document.

If the lowest compliant bid exceeds the Owner's budgeted amount, and the Owner is unwilling or unable to award a contract at the bid price but is unwilling to abandon the project, the following guidelines for a course of action are recommended...

Changes occur in the work that require the contractor and the owner to arrive at an agreed upon price before the work is to be carried out. In situations that warrant the changes to be carried out immediately, Change Directives are issued.

Recently, the BC Government issued its Capital Procurement Audit Tool developed to assist government ministries and agencies in adhering to the existing policies and standards that are set out under the Capital Asset Management Framework, published in 2002.

Providing Planholder Lists to members is a core service provided for decades by the Construction Associations all across Canada. For example the Construction Association of Victoria, which started in 1912 as a Builders Exchange, is the oldest Construction Association west of Winnipeg and it has likely collected Planholders Lists almost from the very beginning of its 95 year existence.

In an effort to advise contractors of the risks associated with onerous clauses in bidding documents, the BC Construction Association will be issuing Contractor Alerts. The Alerts are intended to bring attention to the onerous clauses that some contractors see as an impediment to bidding on projects.

Recently there have been public owners who have implemented requirements for certification for Site Superintendents as a condition of contract on construction projects. The certification has been the CCA Gold Seal certification with the alternative requirement that the Site Superintendent be indentured in the Gold Seal program within a specified time period, after award of contract.

The construction industry is in an unprecedented busy time. The building of a project starts with finding a good, qualified contractor and ends with making sure the final details of construction are completed.

The Public Construction Council of BC has just begun its fourth decade in existence. It has not survived this many years without having good reason for its continued existence. One of the mandates of the Council is to maintain guidelines which promote open, fair and transparent bidding.

There has been a lot of discussion regarding the positive amount of construction on the books and being planned for British Columbia over the next few years. One area of concern that we hear from many stakeholders in the industry is where we are going to find the trade contractors with people to build our facilities and infrastructure.

BCCA and its regional associations recognize the need for pre-qualification on publicly funded projects only in limited circumstances. Generally the ability of the Contractor to secure the necessary bonds is the sole criteria by which Contractors should be pre-qualified.

BCCA and its regional associations recognize the need for pre-qualification on publicly funded projects only in limited circumstances. Generally the ability of the Contractor to secure the necessary bonds is the sole criteria by which Contractors should be pre-qualified.

Given the environment for bidding in these busy times, we believe that owners are competing with each other for the strained resources of the industry. To attract contractors to bid your project and to ensure you are maximizing the competition, we recommend the following...

Cash allowances are recommended where it is impossible to clearly define the scope of a particular item of work, where it is difficult for bidders to accurately estimate the cost of a particular item of work or where access to certain building systems may limit the bidding competition.

An 'alternative' is defined as anything (e.g. a product, an installation, a design, a requirement, a scope of work, etc.) that is separately priced by bidders so as to provide options to the Owner in determining what the work of the contract will actually be.

A standard front end stipulated price document for use on publicly funded building projects with CCDC 2, Stipulated Price Contract (1994), is now available on the website of the Public Construction Council of BC (www.pccbc.com, under Documents).

The Agreement on Internal Trade applies to purchases made by all provincial and territorial governments and their associated agencies, including publicly funded academic, unless specifically exempted under the agreement.

The most common reasons for withholding funds on a construction project are as follows: There may be a statutory requirement for a holdback, as is the case under the Builders Lien Act, or there may be a contractual agreement to holdback funds, generally in the event of deficiencies in the work.